Mortgage Glossary
Your comprehensive guide to mortgage and real estate terminology. Understanding these terms will help you navigate the home buying process with confidence.
Agreement of Purchase and Sale
The legal contract between a purchaser and seller that outlines the terms and conditions of a property sale. We recommend having your offer prepared by a professional realtor with the knowledge and experience to protect you with suitable clauses and conditions.
Amortization Period
The total number of years it takes to repay the entire mortgage based on a set of fixed payments. Common amortization periods in Canada are 25 or 30 years.
Appraisal
The process of determining the market value of a property by a licensed appraiser. Lenders often require an appraisal to ensure the property value supports the mortgage amount.
Assets
What you own or can call upon, including savings, investments, property, and vehicles. Often used in determining net worth or in securing financing.
Assumable Mortgage
A mortgage that can be transferred from the seller to the buyer, allowing the buyer to take over the existing mortgage terms and conditions.
Blended Payment
A mortgage payment that combines principal and interest into one regular payment. The ratio of principal to interest changes over time, with more going toward interest early in the mortgage term.
Bridge Financing
A short-term loan that helps homeowners bridge the gap between the closing date of their new home purchase and the sale of their existing home.
Broker
A licensed professional who acts as an intermediary between borrowers and lenders. Mortgage brokers have access to multiple lenders and can help find the best mortgage products for your situation.
Closed Mortgage
A mortgage that cannot be prepaid, renegotiated, or refinanced before the end of the term without paying a prepayment penalty.
Closing Costs
The expenses beyond the purchase price that buyers and sellers incur when completing a real estate transaction. These include legal fees, land transfer taxes, title insurance, and other disbursements.
Closing Date
The date on which the sale of a property becomes final and the new owner takes possession. This is when the mortgage funds are advanced and ownership is transferred.
CMHC (Canada Mortgage and Housing Corporation)
A federal Crown corporation that provides mortgage loan insurance to lenders, making homeownership more accessible for Canadians with down payments less than 20%.
Collateral
Assets pledged as security for a loan. In the case of a mortgage, the property itself serves as collateral for the loan.
Conditional Offer
An offer to purchase that includes conditions that must be met before the sale can be finalized, such as financing approval, home inspection, or sale of the buyer's current home.
Conventional Mortgage
A mortgage where the down payment is 20% or more of the purchase price. These mortgages do not require mortgage default insurance.
Credit Score
A numerical representation of your creditworthiness based on your credit history. In Canada, scores range from 300 to 900, with higher scores indicating better credit. Most lenders require a minimum score of 600-680 for mortgage approval.
Debt Service Ratios
Calculations used by lenders to determine if you can afford a mortgage. The two main ratios are GDS (Gross Debt Service) and TDS (Total Debt Service).
Default
Failure to meet the legal obligations of a mortgage, typically by missing mortgage payments. Defaulting can lead to foreclosure or power of sale proceedings.
Down Payment
The portion of the purchase price paid upfront by the buyer. In Canada, the minimum down payment is 5% for homes up to $500,000, with higher percentages required for more expensive properties.
Equity
The difference between the market value of your property and the outstanding balance of all mortgages and liens against it. Equity increases as you pay down your mortgage and as property values rise.
Encumbrance
Any claim, lien, or liability attached to a property that may affect its transferability or diminish its value.
First-Time Home Buyer
Someone who has never owned a home before, or who hasn't owned a home in the past four years. First-time buyers in Canada may qualify for special programs like the RRSP Home Buyers' Plan and the First-Time Home Buyer Incentive.
Fixed-Rate Mortgage
A mortgage where the interest rate remains constant throughout the term, providing predictable monthly payments regardless of market rate fluctuations.
Foreclosure
A legal process where the lender takes possession of a property when the borrower defaults on mortgage payments. In Saskatchewan, this process is called judicial sale.
GDS (Gross Debt Service) Ratio
The percentage of your gross income required to cover housing costs, including mortgage payments, property taxes, heating costs, and 50% of condo fees if applicable. Lenders typically want this ratio to be 39% or less.
Guarantor
A person who agrees to be responsible for a mortgage if the borrower defaults. The guarantor's income and credit may be used to help qualify for the mortgage.
High-Ratio Mortgage
A mortgage where the down payment is less than 20% of the purchase price. These mortgages require mortgage default insurance from CMHC, Sagen, or Canada Guaranty.
Home Equity Line of Credit (HELOC)
A revolving line of credit secured against the equity in your home. It allows you to borrow funds as needed up to a credit limit, paying interest only on the amount borrowed.
Home Inspection
A professional examination of a property's condition, including structure, roof, plumbing, electrical, and other systems. Highly recommended before purchasing a home.
Interest Adjustment Date
The date from which interest on your mortgage begins to be calculated. If your closing date differs from your first payment date, you may owe interest adjustment.
Interest Rate
The cost of borrowing money, expressed as a percentage of the loan amount. Mortgage interest rates can be fixed or variable.
Insured Mortgage
A mortgage that is protected by mortgage default insurance. This insurance protects the lender if the borrower defaults, and is required for down payments less than 20%.
Land Transfer Tax
A provincial tax paid by the buyer when purchasing property. Saskatchewan does not have a land transfer tax, making it more affordable to buy property here.
Lender
The financial institution or private entity that provides the mortgage loan. Lenders include banks, credit unions, trust companies, and private lenders.
Liabilities
Debts and financial obligations you owe, including mortgages, car loans, credit card balances, and lines of credit.
Lien
A legal claim against a property that must be paid off when the property is sold. Common liens include mortgages, property taxes, and contractor liens.
Maturity Date
The last day of the mortgage term, when the outstanding balance must be repaid in full or the mortgage renewed.
Mortgage
A loan secured by real property. The borrower agrees to pay back the loan with interest over a specified period, and the lender holds a claim on the property until the loan is repaid.
Mortgage Broker
A licensed professional who arranges mortgages between borrowers and lenders. Brokers work with multiple lenders to find the best mortgage products and rates for their clients.
Mortgage Default Insurance
Insurance that protects the lender against loss if a borrower defaults on their mortgage. Required in Canada for mortgages with less than 20% down payment. Providers include CMHC, Sagen, and Canada Guaranty.
Mortgage Term
The length of time your mortgage agreement and interest rate are in effect. Terms typically range from 6 months to 10 years, with 5 years being the most common.
Open Mortgage
A mortgage that can be prepaid in full or in part at any time without penalty. Open mortgages typically have higher interest rates than closed mortgages.
Offer to Purchase
A written proposal from a buyer to a seller to purchase a property at a specified price and under certain conditions.
Portability
A mortgage feature that allows you to transfer your existing mortgage to a new property without penalty. This can be beneficial if you're moving before your term ends.
Pre-Approval
A conditional commitment from a lender for a specific mortgage amount based on your financial information. Pre-approval helps you know your budget and shows sellers you're a serious buyer.
Prepayment
Paying off all or part of your mortgage principal before the scheduled payment dates. Many mortgages allow annual prepayments of 10-20% without penalty.
Prepayment Penalty
A fee charged by the lender if you pay off your mortgage early, pay more than the allowed prepayment amount, or break your mortgage contract before the term ends.
Prime Rate
The interest rate that banks charge their most creditworthy customers. Variable mortgage rates are typically expressed as prime plus or minus a percentage.
Principal
The amount of money borrowed for a mortgage, not including interest. As you make payments, your principal balance decreases.
Property Taxes
Annual taxes levied by the municipality based on the assessed value of your property. These are often included in mortgage payments and held in a property tax account.
Rate Hold
A guarantee from a lender to hold a specific interest rate for a set period, typically 90-120 days. This protects you from rate increases while you shop for a home.
Refinancing
Paying off your existing mortgage and replacing it with a new one, often to access equity, get a better rate, or consolidate debt.
Renewal
The process of renegotiating your mortgage terms at the end of your current term. You can renew with your existing lender or switch to a new one.
RRSP Home Buyers' Plan
A federal program that allows first-time home buyers to withdraw up to $60,000 tax-free from their RRSPs to buy or build a qualifying home. The withdrawal must be repaid within 15 years.
Second Mortgage
An additional mortgage taken out on a property that already has a first mortgage. Second mortgages have higher interest rates because they carry more risk for the lender.
Stress Test
A requirement that borrowers must qualify for a mortgage at a higher interest rate than they will actually pay. The qualifying rate is the greater of the contract rate plus 2% or the benchmark rate set by the Bank of Canada.
Survey
A document that shows the property boundaries, building locations, and any encroachments. While not always required, a survey can identify potential issues before purchase.
TDS (Total Debt Service) Ratio
The percentage of your gross income required to cover all debt payments, including housing costs and other loans. Lenders typically want this ratio to be 44% or less.
Term
The length of time your mortgage contract is in effect, during which your interest rate is guaranteed. At the end of the term, you can renew, refinance, or pay off the mortgage.
Title
Legal ownership of a property. Title is transferred from seller to buyer at closing and registered with the provincial land titles office.
Title Insurance
Insurance that protects property owners and lenders against losses related to the property's title, such as fraud, forgery, liens, or encroachments.
Variable-Rate Mortgage
A mortgage where the interest rate fluctuates with the prime rate. Payments may stay the same while the proportion going to principal vs. interest changes, or payments may adjust with rate changes.
Vendor Take-Back Mortgage
A mortgage where the seller of the property provides financing to the buyer for part of the purchase price. This can be helpful when traditional financing is difficult to obtain.
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